quantitative analysis for economics and finance

REPORT STRUCTURE – Part 1 – 1,000 words
(excluding tables, references, appendices)
Use Headings – to separate the sections
1. Introduction – state the aim of your report and variables you have selected
2. Sampling Method:
 Explain the process of sample selection with reference to an appropriate sampling method. Here you need to explain and justify your sampling procedure using references from books.
 Provide brief details about your target population and state whether your sample is likely to be representative of your target population
 Discuss advantages and disadvantages of your sampling method in relation to other sampling methods. For example, a random sample is appropriate in statistics because it gives every firm in the population equal chance of being selected; however, random sampling does not stratify the population and, therefore, certain attributes/characteristics of firms can be over- or under-represented (e.g. firms in certain industries).
 Apply discussion of the sampling method to your assignment (do not merely paraphrase book’s material). It is not a very good justification to mention that simple random sampling method was chosen because it is ‘simple’, ‘less time-consuming’ and ‘cheap’.

3. Data & Variables – explain the meaning of variables you have selected (including the source of data) and what transformations were made. Here you need to show formulas and explain the ratios chosen (i.e. explain what your ratios show/indicate).
Use this file for further explanation of the ratios: Ratios Description.docx

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You can create a table with the main variables
Table 1: Definitions of the main variables
Variables Measure/Formula Explanation
Profitability ROCE/ROA/Profit Margin

4. Histograms and Descriptive Statistics – Produce histograms and descriptive statistics (min/max, mean/median, standard deviation, skewness and kurtosis) for profitability (ROCE or ROA or Profit Margin) and the other two variables you have (e.g. Firm Size, Liquidity, Tangibility, Asset Growth, Debt Ratio). Present your Histograms and Descriptive Statistics within the main text:
 Histograms: comment on the shape of the distribution. Additionally, you can comment on:
o How many companies made a profit and how many made a loss. Are there any outliers?
o How many companies have liquidity ratio of above and below 1. Are there any outliers?
o If you choose firm size, you can show both the original variable (Sales in th GBP) and the LN(Sales). This can help your interpretation for firms size, i.e. the largest company had £Xm of Sales in 2018.
o Do your histograms and statistics show any outliers?
 Descriptive Stats: comment on mean/median/min/max/standard deviation/skewness & kurtosis
If there is any outlier and you have made adjustments to the variables (i.e. created a new variable and removed the outlier), please mention and justify how & why you did

5. Conclusion – a brief summary of what was done and what results were obtained.
 ‘This report examines….’
 ‘The main results from histograms show that most companies in the sample [here you can briefly comment on profitability and other variables]’

REPORT STRUCTURE – Part 2 – 1,500 words (excluding tables, references, appendices)

Use Headings to separate the sections
• Introduction – state the aim of your report and the variables you selected to conduct the analysis (see Assignment part 2 to find the aim of the report) – approx. 100 words.

Outliers and Adjustments – discuss any adjustments that were made to your variables. approx. 200-300 words (depends on the number of outliers in your dataset).
If there are any outliers and you have made adjustments to the variables (i.e. created a new variable and removed the outlier), please mention and justify how & why you did it. To provide justification use your descriptive statistics (skewness/kurtosis) as well as histograms. You can relate your discussion to the assumptions of correlation and regression analysis (sensitive to outliers).
Refer to material uploaded in week-6&7 resources – there are references you can use as well.
If your data does not have outliers, you can discuss/justify that there are no outliers in your data and explain why adjustments were not required (based on skewness and kurtosis values and assumptions of correlation and regression analysis).

• Correlation Analysis (Approx. 250-350 words)
Produce Scatterplots. The first step in the correlation analysis would usually involve producing scatter plots to visually identify whether there is any linear association between profitability (ROCE, ROA or profit margin) and each of the other two variables you have (LNSales, Liquidity (Current Ratio), Tangibility, Asset Growth, Debt Ratio). If you removed any outliers, you can show the scatter plot with and without outliers and compare the results.
Produce correlation table and comment on the results.
Your correlation table should have one profitability ratio (ROCE, ROA or profit margin) and the other two variables you have (e.g. Firm Size (LNSaless), Liquidity (Current Ratio), Tangibility, Asset Growth, Debt Ratio). Present your Tables within the main text.
– Discuss/comment on the relationship between profitability and each of the other two variables.
– Check whether there is any potential problem of multicollinearity (if you perform multiple regression analysis).
At this stage you need to choose whether you will conduct simple or multiple regression analysis. It would be good to justify your choice (for example, based on multicollinearity (relationship between Xs); number of observations; articles you read).

Excel file (if you use Excel for your analysis): FTSEALLSHARE_AllFirms_ANALYSIS Example.xlsx

• Regression Analysis – either simple or multiple: approx. 400-500 words.
 State the hypotheses that are tested in this report
 Discuss the main results in relation to the significance levels and the sign of the relationship. State whether your results show evidence in support of the hypothesized relationship. Here you can also discuss R2 and Adj. R2 (and F test for Multiple Regression).
 You may wish to discuss whether your result was expected. Here you could provide a comparison of your results with the results obtained from the correlation analysis and previous findings (i.e. use articles uploaded on Canvas under “Articles for Reading”).

• Limitations – Discuss limitations of your study (e.g. sample size, variables used, limitations of correlation and linear regression methods used) approx. 250-350 words.

• Conclusion – approx. 100-150 words.
– Based on your results, draw a conclusion on the factors influencing firm profitability.
‘This report examines….’
‘The main results from correlation and regression analysis show……’ [comment on the main factors related to profitability according to your results]
– You can also make suggestions for further research in relation to factors that could influence firm performance (i.e. what improvements could be made in future study – more observations; more years; more variables).

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